Once a secret, then a pricey add-on, the three-digit scores are now a freebie

Once a guarded
secret, then a costly amenity, credit scores are on the verge of becoming
freely available to most American consumers.

Discover
Card announced Monday that it will start printing cardholders' FICO scores on
their monthly statements, making it the third card issuer this month -- and the
largest -- to share free scores with its customers, after Barclaycard US and
First Bankcard.

What's
driving credit score glasnost? FICO,
creator of the most widely used score, is allowing lenders who already buy the
score to share it with their customers, at no extra cost. Lenders, particularly card issuers, regularly
look at customers' scores to keep tabs on default risk.

"There
are about 200 million Americans with a FICO score," said Anthony Sprauve,
spokesman for FICO, formerly Fair Isaac Corp. "We're optimistic that this [program] will reach a significant percentage of them."

The rapid
adoption of the free-score policy means that tens of millions of U.S.
cardholders will be able to get free scores in 2014, FICO and card issuers
estimate. Announcements from other
financial institutions are in the works, Sprauve said, and card issuers expect
that free scores will become a routine amenity for card-carrying Americans.

Freebies good, legal rights better
But the freebie,
no matter how widespread, is not the same as a legal right, consumer advocates say.
Like the credit reports on which they are based, credit scores should be
available by law not just to cardholders but to all consumers, who may be denied a loan,
an apartment or even a job because of the three important digits, advocates
say.

"Consumers
Union ... strongly believes that all consumers should have free access to the
credit scores used by lenders in making lending decisions about them,"
wrote Pamela Banks, the nonprofit organization's senior policy counsel, in a letter to FICO that was shared
via email.

Under FICO's
"Open Access" program launched this month, card issuers are taking
different approaches to making the score available. Discover Financial Services
is putting scores on statements sent to "Discover it" cardholders, as
a start. Discover plans to add monthly scores for all of its "tens of
millions" of cardholders in 2014, said Julie Loeger, Discover senior vice
president of brand and acquisition. An "as-of"
date is provided with the score to show how recent the information is.

Barclaycard
is providing scores updated every two months to U.S. cardholders who log in to
their online accounts -- and will send customers an email alert when the score
changes, representatives said. The company is also sharing the two most
important factors driving an individual's score, such as unpaid accounts or too
much use of existing credit, as supplied by FICO.

First
Bankcard, the Nebraska-based issuer with more than 400 partners including Chrysler
and Overstock.com, is also providing free scores via the Web. After about one
week of marketing the service, 10 percent of customers with access to scores have
logged in for a look.

"We
have documentation on how credit scores work, how to improve them -- it's a lot
of information," said First Bankcard Vice President Mihaela Kobjerowski.
About 2.5 million card holders will have access to their score when the rollout
is complete in the first quarter of 2014, she said.

All the
lenders supply a chart showing where an individual's score lies on the
spectrum. FICO scores range from 300 to 850, based on an individual's credit
profile, and the U.S. average is 695 as of the third quarter, according to the Federal
Reserve Bank of New York. The score is derived from the debt load and repayment
history spelled out on your credit report. The formula for the score, developed
by FICO, computes a number based on the default risk of people with a similar
credit profile.

Scores were once secret
What has changed
greatly over the years is the availability of the score. The number was generally
kept secret by lenders until about 2001, when California cracked open the vault
with a law requiring the three major credit bureaus, Experian, Equifax and
TransUnion, to supply scores to consumers for a fee. Home lenders were also
required to share the number with loan applicants. That and other state-level
actions provided momentum for Congress to pass the Fair and Accurate Credit Transactions Act in 2003, which gives consumers the right to a free copy of
their credit report -- but not their score -- from each of the big three credit
bureaus annually.

Consumer
advocates point out that knowing what's on your report does not necessarily
mean understanding your score. While it is true that having too much debt is a
negative, for example, so is having too few open accounts. In addition, the
score will vary somewhat to the degree that the credit report underlying it
differs from others. Because each lender supplies a single FICO score, the free
scores being provided will leave out the two other, potentially different,
scores that could be calculated from a complete set of credit reports.

Consumers Union, while it applauded FICO's
open access program, said it will continue to back a proposed measure in
Congress, the Fair Access to Credit Scores Act, that would guarantee individuals
free access to FICO scores based on all three major credit reports.

"The
bill expands [access] to all consumers, not just those who happen to have an
account at participating banks," said Banks, the Consumers Union counsel.

Currently FICO's consumer products unit, myFICO.com,
sells a one-time look at an individual score for $19.95. Alternatives are vying
for recognition, including the competing VantageScore formulated by the big
three credit bureaus. But FICO's score is used by 90 percent of lenders, according
to its owner, making it the primary choice of loan officers when deciding whether
to use the "Denied" stamp.

Former bank regulator Sheila Bair emphasized the
importance of credit scores in an opinion piece published this month. Bair, the
former head of the FDIC, recounted how an overlooked loan payment would have
cost her about $90,000 in interest charges over the life of her mortgage, because
the damage to her credit score bumped her up to a higher rate.

If the former head of the FDIC can make a
credit-bruising mistake, no one is safe. Having free scores widely available
could help alert customers who make slips like Bair's before they become a
bigger issue. "I don't think it will solve all the problems with consumers
not knowing what their score is," Banks said of the
free score trend. "But it is a step in the right direction."

Published: November 21, 2013

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